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3 Reasons Why Las Vegas Sands is a Top Dividend Stock to Buy

The casino company doesn't show up on the radar screen for many investors, but it still treats shareholders right.

Capital-intensive industries don't typically have companies that are able to pay much in the way of dividends, and the casino gaming business regularly involves multibillion-dollar real estate development projects that put available capital at a premium. Nevertheless, casino giant Las Vegas Sands (NYSE:LVS) has found a way not only to return some of its hard-earned income to shareholders in the form of dividends, but also to increase the amount it pays dramatically over the past few years.

No one can argue that casinos don't generate huge amounts of cash, and Las Vegas Sands has been at the forefront of developing the Asian gaming mecca of Macau into a global destination that has taken full advantage of the monumental growth in China and other key regional economies. With its first-mover advantage in the former Portuguese colony (now a Chinese special administrative region), Las Vegas Sands has stayed ahead of the curve as it fights against Wynn Resorts (NASDAQ:WYNN), Melco Crown (NASDAQ:MLCO), and other players on the Asian gaming scene. Let's look at three ways that Las Vegas Sands looks like a good bet on a top dividend stock to buy today.

1. Las Vegas Sands has become a big player in the dividend arena.It's hard to believe that just three years ago, Las Vegas Sands didn't pay a dividend at all. It was only in early 2012 that the company cited strong cash flow, extensive liquidity, and balance sheet strength in announcing it would begin paying a quarterly dividend at an annual rate of $1 per share. At the time, growth rates in Macau and Singapore looked extremely promising, with seemingly limitless potential to take advantage of the growth explosion in Asia. To sweeten the deal, Las Vegas Sands added a special $2.75 per share dividend in late 2012, just as many companies were returning capital to shareholders before favorable tax rates expired at the beginning of 2013.

Since then, Las Vegas Sands has doubled down on its dividend commitment to shareholders, boosting its quarterly payout to $0.50 per share and giving the stock a dividend yield of more than 3.5%. Combined with recent share repurchase activity, Las Vegas Sands has been more than willing to share its success with its long-term stockholders, making the stock look even more attractive for income investors.

2. Investors are scared about Macau.The only thing better than finding a top dividend stock is buying it at a discount. Las Vegas Sands offers that opportunity to those who believe the furor about falling revenue in Macau is overblown, as the stock is down almost 30% so far in 2014.

Source: Las Vegas Sands.

Admittedly, the decline of junket-based VIP gaming has had a huge transformative effect on the Macau market, and it will take time for Las Vegas Sands, Wynn, Melco, and other casino players in the region to find ways to offset that lost revenue. Yet in the long run, the mass-market audience that Las Vegas Sands hopes will replace those VIP customers could actually produce more revenue, as the boost to gaming revenue and affiliated ventures such as shopping and entertainment could more than offset lost customers elsewhere.

3. Las Vegas Sands has kept itself financially healthy.Several casino stocks have found themselves in serious trouble after neglecting to keep their balance sheets healthy. In particular, Caesars Entertainment (NASDAQ:CZR) has attempted to restructure its debt in lieu of a full-blown bankruptcy proceeding, but it's too early to tell whether the casino company can avoid bankruptcy court indefinitely. MGM Resorts (NYSE:MGM) brought itself to the brink of failure with its ill-timed CityCenter project, which hasn't fared nearly as well as the company had hoped even as Las Vegas has slowly started to recover from the recession.

By contrast, Las Vegas Sands has done a good job of managing its debt at sustainable levels. Through strategic refinancings, Sands has replaced maturing debt with new debt that takes advantage of the favorable interest rate environment. Moreover, because Las Vegas Sands has a debt-to-equity ratio that is just a bit over 1, it has the flexibility to consider strategic moves that some of its rivals simply can't afford right now. That's a boon to its business and to dividend investors looking for a margin of safety.

Casinos aren't typical dividend stocks, but Las Vegas Sands has been a pioneer in that aspect of the industry. Although the company isn't invulnerable to changing economic trends, Sands has the ability to keep paying its current dividend, and even growing the payout -- especially if fears about Macau turn out to be overblown.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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